Yashwant Sinha has a critical role in the story of India’s economic reforms. It was he who was at the helm when the economy was in the worst crisis, keeping the vigil before the dawn of the reforms. In his second innings, it was again he who dispelled the speculations of the continuity of reforms when the NDA came to power after an interval of political instability.

You were the finance minister in early 1991, when India had dangerously low foreign exchange reserves. Can you tell us more about the precarious situation?
That time the political situation was quite shaky and the economic situation was pretty grim. This, together, was a deadly combination. Actually, it was in 1991 that we saw the real meaning of the oft repeated phrase that it’s always ‘stupid politics’ which overtakes good economics.

The Congress party had pulled the rug under the Chandra Shekhar government’s feet right before we were to present the annual budget. I was ordered to present an interim budget. The game plan of the Congress was clear – they knew that we were going to present a reform-oriented budget. Later the government had to go to the IMF [International monetary fund] for a bigger loan to overcome the BoP [balance of payment] crisis and also to move the economy forward. In fact, after I had presented the interim budget, the Congress members had moved into the well of the Lok Sabha protesting on a flimsy issue; the motion of thanks on the president’s address fell and prime minister Chandra Shekhar tendered his resignation.

[PV] Narasimha Rao took over as prime minister on June 25, 1991. Till then and even before the Chandra Shekhar [caretaker] government was always firefighting to prevent India from defaulting on repayment of external debt. This was a huge challenge. The RBI and the ministry of finance were monitoring the situation round-the-clock. It goes to the credit of the Chandra Shekhar government that in spite of being a caretaker government we managed to ensure that India did not default on repayment.

The nation, it seems, had not taken kindly to the news of mortgaging gold to raise funds to deal with the balance of payment crisis then.

The fact was that all the long- and short-term loans had been taken by the Rajiv Gandhi government. Interestingly, neither his nor the next, VP Singh government, had taken care to process the repayment. In fact, the mortgaging of gold had become an absolute necessity to make sure that the next government did not inherit an empty treasury. Chandra Shekhar was a pragmatic leader; he even did not let his socialistic ideology come in the way of good governance.

The general view is that it was Dr Manmohan Singh, who, as finance minister, took the bold step of devaluation of rupee and that was the beginning of reforms in the Indian economy.

Even Manmohan Singh, in different interviews, has clarified that in his first budget he had only put together ideas that were being discussed within the government that time. The fact of the matter is that the government had been talking to the IMF for a $1.2 billion loan to energise the Indian economy. We were also in touch with the IMF for measures to be undertaken for boosting the economy. Naturally, these ideas and suggested measures had to be reflected in the budget. Had I been allowed to present the budget I too would have touched upon these measures in my speech. We all know that in our system, except for the speech of minister, the budget exercise is completed by February 10. So, when it was Manmohan Singh’s turn to present the budget in July, the document was already ready. The reforms that were initiated through this budget had in fact been suggested by the IMF during the negotiations for $1.2 billion loan. The discussions were going on [with IMF] during the Chandra Shekhar government but we had not taken the final call then. If I was not forced to present an interim budget I would have also made the same speech, which Manmohan Singh made in July.

Similarly on the political side, apart from Narasimha Rao, how much credit should Chandra Shekhar get for kick-starting the thinking for the need for economic reforms?

Chandra Shekhar was pragmatic to the extent that during the Iran-Iraq war he allowed the US air force planes to land on Indian soil for refuelling. Of course, these were not combat aircraft but the ones associated with medical emergencies and supplies. He had realised that India could no longer live in isolation. He was a progressive leader. Today, many people have started acknowledging the fact that history has not judged him rightly so far. In fact in my book ‘Confessions of a Swadeshi Reformer: My Years as Finance Minister’ I have written that Chandra Shekhar’s failure was his success as prime minister. Had he been allowed to continue, I am sure he would have cracked three major problems of India – the Ram Janmabhoomi deadlock, Kashmir issue and Punjab turmoil.

In fact, very few people would remember today that in 1991, terrorists had abducted five Swedish nationals in Kashmir. It was Chandra Shekhar who had picked the phone to dial [Pakistan prime minister] Nawaz Sharif’s number. He spoke with Nawaz Sharif and soon the Swedish people were released. This was his way of handling a crisis. Now compare this with the handling of the Rubaiya Sayeed abduction by the VP Singh government [by releasing five dreaded terrorists in exchange for release of home minister Mufti Mohammed Sayeed’s daughter]. And we should keep in mind that Chandra Shekhar had a clout of only 56 MPs.

Now 25 years later some people are trying to do justice to him. Recently a top economist had tweeted that let’s not forget what we went through [on balance of payment crisis]; prevention of default on payment was a huge achievement of the Chandra Shekhar government.

That time he was much riled upon for mortgaging gold to the IMF. People had failed to realise that this had, in fact, saved India.

So, Manmohan Singh should not be singled out as a pioneering reformer?

He didn’t have a choice except to present that kind of budget to get over a large loan. Manmohan Singh was Chandra Shekhar’s economic advisor while I was the finance minister. Therefore, he was very much part of the system which was negotiating with the IMF for a loan. The government, the RBI, and the planning commission were all talking to the IMF. The IMF had suggested many things including the devaluation of rupee. We also have to remember that it was the Rajiv Gandhi government that was solely responsible for creating the balance of payment crisis. Another fact about Manmohan Singh is that he was not the first choice of prime minister PV Narasimha Rao as finance minister. Rao wanted the noted economist IG Patel. But since Patel turned away the offer he picked Manmohan Singh. In fact Patel has said that during five years of the Rajiv Gandhi government money did not matter and this had created the balance of payment crisis.

In your view, what all has changed in the last 25 years?

No doubt, during this period the economic growth has been far more impressive than it was before. This has resulted in creation of more wealth. However, the sad part is that this growth story has not remained consistent. It has been like a stop-and-go story and sometimes it would completely stop. Overall the economic reform has been necessarily slow.

We have to understand that the economic reforms in India have not been backed by consensus across political parties. GST [goods and services tax] is one such provision which is not happening because of the lack of consensus. Since 1991, governments have taken the reforms forward but nobody has tried to build a political consensus on it.

What have the reforms meant for the common people?

People of India have generally remained untouched by reforms. In fact, it is a reality that reforms have not been able to solve their daily problems of water scarcity, poor infrastructure and so on. Also the reforms have not touched the rural deprivations, which have increased. This, I think, is the biggest failure of reforms. It has also led to increased gap between the rich and the poor. In fact, since 1991 the pro-reform lobby has rendered the biggest disservice to the cause of reforms by identifying liberalisation with foreign direct investment [FDI]. It is a wrong premise that only if you open your economy to outsiders would it amount to reforms. The kisan credit card is a scheme that was launched by our government to bring rural masses under the ambit of reforms. And this is something that no pink paper [financial newspapers] would write about.

If one takes the GDP [gross domestic product] figures of a decade, one would notice that the share of agricultural economy in it has been only 12 to 13 percent. This is a sorry state of affairs given the fact that 50 percent population is dependent on agriculture. This is the major reason for rural distress.

What should be done?

We have to follow the example of many countries where the governments have been able to generate a lot of employment opportunities and successfully wean away young people from agriculture. China is a prime example of this. Each year China very systematically builds new cities. People from villages are shifting to these cities for jobs. Why are we not able to do it? Chandigarh is the only city which we have created post-independence. We need policies to sort out this fundamental structural imbalance.

What should the Modi government do to rev up the economy?

There is always room for improvement. Today the new government has to think of creating more jobs to deal with rampant unemployment. Frankly, it will not happen in a hurry. For this the government should have persuasive policies which will come through development of infrastructure. The employment opportunities should come out of gainful entrepreneurship and work and not doles. This is where I disagree with the Congress party’s approach with schemes like MNREGA. Today in India, there is a dire need for major infrastructure projects which, in turn, will lead to creation of jobs. This way we would be able to kill two birds with one stone.

Housing is another area where the government has not paid adequate attention so far. This is the reason for the real estate distress. More houses will encourage manufacturing.

I have been saying this that instead of going for Make in India you should first make India and then the Make in India will follow. During Atal Bihari Vajpayee’s government we experienced this. When he had launched major highway projects at that time the companies had to import special machinery required for the project. The government made imports of these machines duty-free. However, since the highway project continued, we now manufacture all the heavy machinery used in road construction in India. We are no longer importing these machines.

Manmohan Singh has recently said that the reforms in India are crisis-driven. Do you agree?

I don’t agree 100 percent with Manmohan Singh. In 1991, the Chandra Shekhar government did its bit to help the situation. From 1998 to 2004, when Vajpayee was the prime minister, the government had embraced reforms in full earnest. Surely their [of Congress-led government] process had begun under duress as the BoP crisis had led to reforms. However, my reforms [during the Vajpayee government] were not driven by crisis.

In a nutshell what will you rate as the biggest success of reforms and may also the biggest drawback?

The biggest success of the reforms has been the impressive growth rate of India and creation of more wealth. However, the wealth created has not been equitably distributed. It had also not made a marked improvement in the quality of life.

The biggest failure is that we could have made structural changes to do more for the masses. The current urban distress is also linked to rural distress. The rural-urban drift has increased. Today in India about 26 percent people are living in cities while it should have been at least 50 percent. No new cities have been set up to enable the people to migrate from villages and lower their dependence for livelihood on agriculture. The city infrastructure is bursting at seams; the cities are choking with traffic.

We have had an era of coalition governments in India and that is probably one reason for slow movement of reforms. But since the Modi government has come to power with an absolute majority they should do more.

No, they too face problem in the Rajya Sabha.

Who in the government is to be blamed for mismanaging l’affaire Raghuram Rajan?

Unfortunately, Rajan has been commenting on issues which were not in the ambit of his responsibilities as governor of RBI. He took the risk of projecting himself as a public figure, thereby exposing himself to scrutiny. He could not ask for the protective armour of a civil servant.

On policy issues, during Rajan’s time, RBI did not cut down interest rates. However, I fully agree that there should not be personal attacks and the criticism should be only on policies and work. The fact is that Rajan has quit on his own and he was not thrown out.

But he is quitting apparently because of the government’s silence about the attacks on him.

Why did he not speak to the prime minister on this? Had he sought the prime minister’s views on his continuation? The fact is that he chose to opt out and not seek a second term and as he wanted to be back to the academia. The government never wanted to remove him.

aasha@governancenow.com

(The interview appears in July 16-31, 2016 edition of Governance Now)

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